Netflix sees a bright future, sans Amazon competition

Netflix's CFO talks up Netflix's future, saying that he believes Amazon is out …

Netflix scored a big win when competitor Wal-Mart bowed out of the DVD rentals game, essentially making the market a two-player match for dominance. Yet there's been plenty of rumors surrounding Amazon, and whether or not the book-selling giant would want in on the action too. Now Netflix CFO Barry McCarthy says that he doesn't see Amazon entering the online movie rental business in the US, putting ice on the idea that Amazon is naturally suited to the business. McCarthy's comments, made in last week's Morgan Stanley Small Cap Conference (webcast here), noted that as recently as last October, Netflix believed that Amazon was gearing up for attack. They knew that Amazon had developers working on the necessary technology, and McCarthy said that he believed them to be in negotiations with the studios for product launch support.

The developers were in fact working on tech for the service, as witnessed by the launch of Amazon's online DVD rental service in the UK. But McCarthy doesn't believe the service will come stateside. The biggest problem? Amazon's infrastructure.

"It was clear that they couldn't support a launch through their network of warehouses across the country, because they're not centrally located next to post office distribution centers. They're in low cost areas which supports their core business but it doesn't leverage the existing infrastructure," he said.

The price of entry is much higher now than it was in the past, both in terms of the cost of locating warehouses and just the mere fact that Netflix and Blockbuster are both considerably larger now. McCarthy then said that Amazon is in the classic make-versus-buy dilemma, noting that the company can either start from scratch or try to acquire service through either an acquisition or partnership. As to whether or not Amazon and Netflix are in negotiations for a partnership, McCarthy said "my comment is 'no comment'." He did make it clear that while the announcement of a partnership with Amazon would send the stock flying, it would likely bite them back in the long run if they paid too much for it. McCarthy seemed to suggest that such a deal might bring in as many as 400,000 new subscribers, but if the cost of getting those new subscribers is too high, it could be financially irresponsible, despite what the effects on the stock may be.

The real opportunity for growth will come from two sources in the future: the advent of HD-DVD (or whatever HD solution wins), and an ever-shortening release window between DVD availability and theatrical releases. McCarthy believes that weak theater revenues points to an eventuality that we here at Ars would welcome: simultaneous releases.

Ken Fisher / Ken is the founder & Editor-in-Chief of Ars Technica. A veteran of the IT industry and a scholar of antiquity, Ken studies the emergence of intellectual property regimes and their effects on culture and innovation.